2degrees has emerged as an IPO candidate for the NZX.
The Kiwi telco's Seattle-based, Toronto-listed parent company Trilogy International Partners, says it is "exploring a partial public listing" of the telco on the NZX and ASX in the second half of this year.
2degrees chief executive Mark Aue told the Herald there were four reasons for putting a possible IPO on the table: the strength of equity markets around the world; the strong performance of telco stocks amid the pandemic; the NZ dollar being at a multi-year high; and 2degrees' strong performance of the past 12 months.
Trilogy International Partners owns two phone companies: 2degrees here and NeuvaTel (trading as Viva) in Bolivia.
An insider told the Herald that an IPO had long been considered for 2degrees in NZ, but that NeuvaTel - weighed down by political instability and Bolivian government demands of "payment holidays" on telecommunications services for many during the outbreak - was regarded as a millstone.
But Trilogy recently put NeuvaTel on the block, clearing the way for a local listing, and unlocking value in 2degrees. As things stand, the Toronto-listed Trilogy has a market cap of just C$84.6m ($91.1m).
In a filing, Trilogy also revealed 2degrees' 2020 financials today (its financial year coincides with the calendar year).
2degrees' revenue was US$458.9m ($657.1m), a 6 per cent decline on 2019's US$486.4m - with the drop pinned, in part, on global roaming revenue drying up amid border closures.
Ebitda was US$111.4m, a 5 per cent increase from the year-ago US$106.3m amid strong demand for fixed-line broadband and business mobile, and a Covid belt-tightening exercise that saw 2degrees cull 10 per cent of its staff.
"Our New Zealand team delivered record service revenue and segment-adjusted ebitda levels during a year of challenging circumstances created by the pandemic," Trilogy CEO and president Brad Horowitz said in a statement this morning.
However, big knock-backs in Bolivia saw Trilogy book an overall net loss of US$79.7m for 2020 from a profit of US$24m in 2019.
Horowitz said Trilogy expected "to maintain a significant interest in the business following any public listing".
Proceeds from any IPO would be used "To accelerate growth initiatives at 2degrees as well as enable Trilogy to reduce the debt it incurred while building the 2degrees business," Horowitz said.
That "debt incurred" casts a long shadow.
Today, Trilogy said its long-term debt and financing lease liabilities stood at US$630m from the year-ago US$528.7m - a lot of it maturing in 2022. (Cash stood at US$102m from the year-ago US$78.5m.)
However, Aue told the Herald, "There is no intention to increase debt at 2degrees."
While Trilogy is easily the largest shareholder in 2degrees with its 73 per cent stake, it was not the only shareholder, meaning it couldn't offload all of its debts on to a spun-off 2degrees (the balance of shares in the Kiwi telco are owned by Netherlands-based Tresbit).
"As part of the IPO, 2degrees will raise cash to accelerate its growth plans," Aue adds.
The CEO said it was too early in the process to talk about valuation metrics.
But he offered the broader comment that "I'd expect the market to be very excited about a 2degrees listing."
The CEO added, "2degrees' 1100 staff are 100 per cent Kiwi-based, so an NZX listing makes sense." It was too early in the process to say if the stock would be dual-listed on the ASX.
Aue said 2degrees was still on track to begin its 5G mobile network upgrade by the end of this year. He said the upgrade was fully-funded and not contingent on an IPO going ahead - although he added that funds from a listing could accelerate growth plans across the board.
2degrees, which launched in 2009, claims 1.6 million subscribers throughout New Zealand, including more than 500,000 pay monthly mobile customers and over 130,000 broadband customers.
"Alongside growth in consumer mobile and residential broadband, 2degrees continued to gain traction in the business market, recently surpassing 100,000 mobile business customers," the company said in a statement this morning.
Aue said the fixed-line broadband and mobile business customer numbers were the fastest growing in the industry, according to IDC.
Technology Users Association head Craig Young told the Herald this morning, "This is good news for New Zealand if the IPO goes ahead. New Zealand ownership is always welcome as they are then focused on this market and users here. It's also good for the company to be listed on our stock exchange and the profits to be invested and remain in NZ."
2degrees was founded by Tex Edwards, utilising discount 3G spectrum sold to the Hautaki Trust by the Crown. The iwi group retains a small stake, indirectly, but Edwards was bought out by Trilogy.
The telco first broke into the black in 2016 and has been profitable every year since.
Trilogy was founded by its chairman, John Stanton, a longtime telco investor and entrepreneur who also sits on the boards of Microsoft and retail giant CostCo.
If a listing for 2degrees does go ahead, it will be third-time lucky on the phone company front for the NZX.
In 2019, Vodafone's plan to list its NZ business on the local bourse was headed off by a $2.4 billion trade sale to Infratil and Brookfield Asset Management.
And on March 9 this year, Vocus Group scrapped its plan for a $722m NZX listing of its local operation (which includes Orcon, Slingshot, Flip and 2Talk) after entering an agreement to be bought by Macquarie Group and Aware Super in a A$3.4b deal still subject to shareholder and regulatory approval.